Down payment for multiple condos

18 Replies

I could possibly have an opportunity to purchase 8 condos together (in Kansas). This would be my first true investment property. (I just purchased a home and will be turning it into a rental later next year, and also have ownership in a duplex that my parents purchased). 6 of the condos are already occupied, 1 is going through an eviction and 1 is vacant. I have already obtained info about rents and expenses from 2013 and this year. It would be a great investment. However, I don't have the required down payment and was wondering if anyone would have any suggestions. The asking price is $190k. I've got $15k from a relative. That leaves $23k that I need to come up with. I've googled and searched these forums, so I've seen all the options your going to get with a basic search. I do not yet have any equity in my home, as I just purchased it a few months ago. At the same time that I purchased my home, my car died. Instead of acquiring debt, I used all of my cash to purchase a new one. If it weren't for that, I would have at least another 10k of my own. Now, I have nothing to show for the hard saving I've been doing for the last year and a half.

Anyway, I read an undetailed suggestion of getting a 2nd mortgage. Maybe someone could shed some light on this? I am partnering up with my brother. He doesn't have great credit or any money saved but owns a renovation business and has offered to do the maintenance in exchange for ownership. This would obviously keep maintenance costs down. Also, I am the Assistant Property Manager of over 500 homes, so I'm not jumping into this blindly. 

Do I even have a chance of making it happen?

Thanks so much

You can try searching for a lender that will finance for a lower downpayment or you can get a personal loan or credit card cash advance.  I've cash advanced over 20k using credit cards with USAA.

Hmm. Wouldn't the credit card cash advance be really risky with extremely high interest rates? I'll definitely look into that.

I asked the listing agent, who works with a lot of investors. She said she doesn't know of anyone that would finance for less than 20% down and many of them require 30%.

@Toni Fowler  

How many units are in the condo development?  Conventional lending will not allow one person to own more than 25%. Unless there's 32 condo's you will probably need to go a commercial route.

How about taking on an equity partner?  You say $15K is coming from a relative.  Is that a loan or are they a partner in the deal?  If they're a partner and you take on another then you're giving up a large percentage of the deal.

Lenders will often ask if the down payment is borrowed.  So, doing equity investors will be more likely to pass muster with the lenders than borrowing down payments.

To build on @Joe Impagliazzo "warrant-ability" is the more general issue. If the project isn't warrantable you'll have to get a commercial lender and 25% or more may be required.  If it is warrantable then conventional might be possible.  Even then you will need 25% down for a bunch of loans like that.

I'm not sure of the exact number but it's definitely more than 32. There are 3 or 4 different buildings, each 2 stories. That is good information to know though. Thanks!

The $15k would be a "gift" if they will allow that. I'm not even sure of that yet. The only people who would have ownership would be me and my brother.

@Toni Fowler  

@Jon Holdman  brings up a good point about gifts from relatives.  Investment property's differ from primary residences where you can't use a gift for down payment.  The only option is to let it season for a full 2 months worth of bank statements, where the lender no longer asks where the funds came from.

Have you tried Prosper or Lending Club?

Seems like you're trying to buy these units with 100% financing.  Are they actually profitable with that much leverage?  You spoke of risk with credit card cash advances.  I see no particular risk with those vs. some other source of funding for the down payment.  You're going to be overleveraged (IMHO) no matter how you find the money.  No lender is going to take this slice of the deal.  Even hard money lenders offering loans at double digit rates and a handful of points wouldn't finance your down payment.  A personal loan from a bank or credit union may be your best option for a lower rate.

Interest rate for cash advance with USAA is between 7.75% and 14.9% for me but typically 10.9% which I think is better than many other banks

Well this info definitely raises some questions that I need to ask the agent. I will look into Lending Club. I'm not sure why I didn't think of that before.  I really appreciate the quick responses.

@Toni Fowler Hi. Sent you an invite for our REI meeting on the 18th reference email from Jason Hill. Would love to talk to you about this opportunity before hand. Shoot me an email sometime.

Are these HOA condos? Having that many condos scares me if that is your entire portfolio.

I'm not sure if this is possible or not, but could you possibly find a bank or a lender that would finance your car since you only purchased it a few months ago?  That could free up some cash.  Auto loan rates are pretty low in comparison to some other options.  

@Frank R can you elaborate on why that would scare you?

@Eric Gutierrez I'm honestly not sure about that. Never even crossed my mind! I'll have to look into that. Thanks!

My experience is lenders are typically are very picky when it comes to Condo as the HOA effects the debt ratio and if there is a risk that if a few of them become available you will be responsible for the mortgage and the HOA as well and all this adds up. How much is the HOA? What is the debt coverage ratio?

HOA is $105 on each of the 5 one bedrooms and $125 on the 3 two bedrooms. Not sure about the debt coverage ratio at this moment.

@Toni Fowler depending on the stability of the HOA, age, mixture of tenants vs owners there is uncertainty. I'm not against them. I own 6 properties that have a HOA and one is a commercial warehouse/office in a HOA.

I've never had any issue financing condos with portfolio lenders.  They never even question it.  They did want short amortization  7-12 years...


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